Skip to main content
SpringerLink
Log in

Selection of Socially Responsible Portfolios Using Hedonic Prices

  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

This paper presents a novel framework for selecting socially responsible investment (SRI) portfolios. The Hedonic Price Method (HPM) is applied to obtain an evaluation of SRI criteria that is integrated into a multi-objective mathematical programming model. The HPM breaks away from the traditional view that goods are the direct object of utility; on the contrary, it assumes that utility is derived from the properties or characteristics of the goods themselves. As far as the investment decision is concerned, we assume that socially responsible investmentmutual funds (SRI funds) constitute heterogeneous goods. Our approach allows us to obtain a portfolio, the financial performance of which is similar to that which the investor would have reached if he or she had not taken into account social, ethical, and environmental considerations when making his or her investment decisions. This is achieved by designing a two-stage multi-objective mathematical programming procedure. In the first stage, we achieve the maximum level of financial satisfaction that the investor can receive. In the second stage, the portfolio with the best financial–social behavior is built. For the purpose of this second stage, the first stage portfolio is used as a benchmark for the financial performance of a socially responsible portfolio. To apply this methodology, we use portfolios composed of socially responsible and conventional mutual funds domiciled in Spain.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7
Fig. 8
Fig. 9
Fig. 10
Fig. 11
Fig. 12

Similar content being viewed by others

Notes

  1. Data has been provided by Morningstar.

  2. We have used The EIRIS Green and Ethical Funds Directory (2008) to identify SEE characteristics that verify Spanish SRI funds.

References

  • Arenas, M., Bilbao, A., & Rodríguez, M. V. (2001). A fuzzy goal programming approach to portfolio selection. European Journal of Operational Research, 133(2), 287–297.

    Article  Google Scholar 

  • Ballestero, E., & Romero, C. (1996). Portfolio selection: A compromise programming solution. Journal of the Operational Research Society, 47(11), 1377–1386.

    Google Scholar 

  • Barnett, M., & Salomon, R. (2006). Beyond dichotomy: The curvilinear relationship between social responsibility and financial performance. Strategic Management Journal, 27, 1101–1122.

    Article  Google Scholar 

  • Barracchini, C. (2007). An ethical investments evaluation for portfolio selection. Journal of Business Ethics and Organization Studies, 9, 1239–2685.

    Google Scholar 

  • Barrachini, C. (2004). An ethical investments evaluation for portfolio selection. Electronic Journal of Business, Ethics and Organization Studies, 9(1). Accessed June 20, 2009, from http://ejbo.jyu.fi.

  • Basel Committee on Banking Supervision. (1998). International convergence of capital measurement and capital standards. Basel: Basel Committee Publications.

  • Basel Committee on Banking Supervision. (1999). A new capital adequacy framework. Basel: Basel Committee Publications.

  • Basel Committee on Banking Supervision. (2001). The new base capital accord. Basel: Basel Committee Publications.

  • Basso, A., & Funari, S. (2003). Measuring the performance of ethical mutual funds: A DEA approach. Journal of the Operational Research Society, 54, 521–531.

    Article  Google Scholar 

  • Bilbao, A., Arenas, M., & Cañal, V. (2012). Selection of socially responsible portfolios using goal programming and fuzzy technology. Information Sciences, 189, 110–125.

    Article  Google Scholar 

  • Bilbao, C., & Cañal, V. (2011). ‘Valoración del Mercado de los Activos Éticos en España: una Aplicación del Método de los Precios Hedónicos. FUNCAS, Documento de trabajo no. 623. Accessed October 20, 2011, from http://www.funcas.es/publicaciones/Sumario.aspx?IdRef=7-05623.

  • Carroll, A. B. (1979). A three-dimensional conceptual model of corporate social performance. Academy of Management Review, 4(4), 497–505.

    Google Scholar 

  • Carroll, A. B. (2006). Corporate social responsibility: A historical perspective. In M. J. Epstein & K. O. Hanson (Eds.), The accountable corporation (Vol. 3). Westport, CT: Praeger.

    Google Scholar 

  • Collison, D. J., Cobb, G., Power, D. M., & Stevenson, L. A. (2008). The financial performance of the FTSE4 good Indices. Corporate Social Responsibility and Environmental Management, 15(1), 14–28.

    Article  Google Scholar 

  • Cullis, J. G., Lewis, A., & Winnett, A. (1992). Paying to be good? U.K. Ethical investments. Kyklos, 45(1), 3–24.

    Article  Google Scholar 

  • Drut, B. (2009). Nice guys with cold feet: The cost of responsible investing in the bondmarkets. Working Paper 09-34, Centre Emile Bernheim, Université Libre de Bruxelles.

  • Drut, B. (2010). Social responsibility and mean-variance portfolio selection, Centre Emile Bernheim (CEB). Working Paper 10-002.RS, Université Libre de Bruxelles, Solvay Bruxelles School of Economics and Management.

  • European Commission. (2001). Accessed June 20, 2009, from http://ec.europa.eu/enterprise/newsroom/cf/itemdetail.cfm?item_id=3908&lang=es.

  • Farmen, T., & Van Der Wijst, N. (2005). A cautionary note on the pricing of ethics. Journal of Investing, 14(3), 53–56.

    Article  Google Scholar 

  • Glac, K. (2009). Understanding socially responsible investing: The effect of decision frames and trade-off options. Journal of Business Ethics, 87, 41–55.

    Article  Google Scholar 

  • Hallerbach, W., Ning, H., Soppe, A., & Spronk, J. (2004). A framework for managing a portfolio of socially responsible investments. European Journal of Operational Research, 153(2), 517–529.

    Article  Google Scholar 

  • Hwang, C.-L., & Masud, A. S. M. (1979). Multiple objectives decision making methods and applications. Berlin: Springer.

    Book  Google Scholar 

  • Ignizio, J. P. (1982). Linear programming in single and multiple objective systems. Englewood Cliffs, NJ: Prentice-Hall.

    Google Scholar 

  • Jansson, M., & Beil, A. (2009). Psychological influences on investors intention to be socially responsible investors: A comparison what influences SRI intentions among different types of investors. Sustainable Investment and Corporate Governance. Working Paper 2009/6, Sustainable Investment Research Platform.

  • Jones, T. M. (1980). Corporate social responsibility revisited, redefined. California Management Review, 22(3), 59–67.

    Article  Google Scholar 

  • Kaminski, B., Czupryna, M., & Szapiro, T. (2009). On conditional value-at-risk based goal programming portfolio selection procedure. In V. Barichard, M. Ehrgott, X. Gandibleux, & V. T’Kindt (Eds.), Multiobjective programming and goal programming (pp. 243–252). Berlin: Springer.

    Chapter  Google Scholar 

  • Kempf, A., & Osthoff, P. (2008). SRI funds: Nomen est Omen. Journal of Business, Finance and Accounting, 35(9), 1276–1294.

    Article  Google Scholar 

  • Krokhmal, P., Palmquist, J., & Uryasev, S. (2002). Portfolio optimization with conditional value at-risk objective and constraints. Journal of Risk, 4(2), 43–68.

    Google Scholar 

  • Kwiatkowski, D., Phillips, P., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic series have a unit root? Journal of Econometrics, 54(1–3), 159–178.

    Article  Google Scholar 

  • Lancaster, K. J. (1966). A new approach to consumer theory. Journal of Political Economy, 7(2), 132–157.

    Article  Google Scholar 

  • Lancaster, K. J. (1971). Consumer demand: A new approach. New York: Columbia University Press.

    Google Scholar 

  • Lancaster, K. J. (1979). Variety, equity and efficiency. Oxford: Basil Blackwell.

    Google Scholar 

  • Lee, S. M., & Chesser, D. L. (1980). Goal programming for portfolio selection. The Journal of Portfolio Management, 6(3), 22–26.

    Article  Google Scholar 

  • Lee, S. M., & Lerro, A. J. (1973). Optimizing the portfolio selection for mutual funds. The Journal of Finance, 28(5), 1087–1101.

    Article  Google Scholar 

  • Lewis, A., & Mackenzie, C. (2000a). Morals, money, ethical investing and economic psychology. Human Relations, 53(2), 179–191.

    Google Scholar 

  • Lewis, A., & Mackenzie, C. (2000b). Support for investor activism among U.K. ethical investors. Journal of Business Ethics, 24(3), 215–222.

    Article  Google Scholar 

  • Mackenzie, C., & Lewis, A. (1999). Morals and markets: The case of ethical investing. Business Ethics Quarterly, 9(3), 439–452.

    Google Scholar 

  • Markowitz, H. M. (1952). Portfolio selection. Journal of Finance, 7(1), 77–91.

    Google Scholar 

  • Meucci, A. (2007). Risk and asset allocation. New York: Springer Quantitative Finance.

    Google Scholar 

  • Miller, A. (1991). Socially responsible investment. Business Economist, 23(1), 21–33.

    Google Scholar 

  • Rockafellar, R. T., & Uryasev, S. (2000). Optimization of conditional value-at-risk. Journal of Risk, 2, 21–41.

    Google Scholar 

  • Romero, C. (1985). Multi-objective and goal programming approaches as a distance function model. Journal of the Operational Research Society, 36(3), 249–251.

    Google Scholar 

  • Rosen, S. (1974). Hedonic prices and implicit markets: Product differentiation in pure competition. Journal of Political Economy, 82(1), 34–55.

    Article  Google Scholar 

  • Rosen, B. N., Sandler, D. M., & Shani, D. (1991). Social issues and socially responsible investment behavior: A preliminary empirical investigation. The Journal of Consumer Affairs, 25(3), 221–234.

    Article  Google Scholar 

  • Ruf, B. M., Muralidhar, K., Brown, R. M., Janney, J. J., & Paul, K. (2001). An empirical investigation of the relationship between change in corporate social performance and financial performance: A stakeholder theory. Journal of Business Ethics, 32, 143–156.

    Article  Google Scholar 

  • Ruf, B. M., Muralidhar, K., & Paul, K. (1998). The development of a systematic, aggregate measure of corporate social performance. Journal of Management, 24, 119–133.

    Google Scholar 

  • Scholtens, B. (2009). Measuring sustainability performance of investments; the case of Dutchbond funds. Paper prepared for the PRI Academic Conference 2009. Accessed April 16, 2010, from http://www.unpri.org/files/Scholtens_PRI2009.pdf.

  • Social Investment Forum. (2006). Report on socially responsible investing trends in the United States. Washington, DC: Social Investment Forum.

  • Tsai, W.-H., Chou, W.-C., & Hsu, W. (2009). The sustainability balanced scorecard as a framework for selecting socially responsible investment: An effective MCDM model. Journal of the Operational Research Society, 60, 1396–1410.

    Article  Google Scholar 

  • Von Neumann, J., & Morgenstern, O. (1944). Theory of games and economic behavior. Princeton: Princeton University Press.

    Google Scholar 

  • Webley, P., Lewis, A., & Mackenzie, C. (2001). Commitment among ethical investors: An experimental approach. Journal of Economic Psychology, 22, 27–42.

    Article  Google Scholar 

  • Wood, D. J., & Jones, E. J. (1995). Stakeholder mismatching: A theoretical problem in empirical research on corporate social performance. The International Journal of Organizational Analysis, 3(3), 229–267.

    Article  Google Scholar 

  • Zeleny, M. (1974). Linear multiobjective programming. Berlin: Springer.

    Book  Google Scholar 

Download references

Acknowledgments

We would like to thank the anonymous referees for their valuable comments and suggestions. The authors wish to gratefully acknowledge the financial support from the Spanish Ministry of Education, Project ECO2011-26499.

Author information

Authors and Affiliations

  1. Department of Quantitative Economics, Faculty of Economics and Business, University of Oviedo, Avda. del Cristo s/n, 33006, Oviedo, Asturias, Spain

    Amelia Bilbao-Terol & Mar Arenas-Parra

  2. Department of Applied Economics, Faculty of Economics and Business, University of Oviedo, Avda. del Cristo s/n, 33006, Oviedo, Asturias, Spain

    Verónica Cañal-Fernández

  3. Department of Economics, Faculty of Economics and Business, University of Oviedo, Avda. del Cristo s/n, 33006, Oviedo, Asturias, Spain

    Celia Bilbao-Terol

Authors
  1. Amelia Bilbao-Terol
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Mar Arenas-Parra
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Verónica Cañal-Fernández
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Celia Bilbao-Terol
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Amelia Bilbao-Terol.

Appendix

Appendix

Graphical descriptions of the weekly composite returns of the Banif Estructurado FI fund. The histogram reflects a leptokurtic distribution.

The Box-plot shows a series of high-frequency in the tails, which is consistent with information provided by the QQ-plot, where you can see that both tails of the empirical distribution are heavier than the corresponding to a normal distribution. Similar features are seen in the rest of the funds (see Figs. 13, 14.

Fig. 13
figure 13

Histogram and kernel density of Banif Estructurado FI

Full size image
Fig. 14
figure 14

Box-plot and QQ-plot of Banif Estructurado FI

Full size image

; Tables 5, 6, 7, 8, 9, 10).

Table 5 Spanish SEE criteria
Full size table
Table 6 Fulfillment matrix of the criteria
Full size table
Table 7 Spanish socially responsible mutual funds
Full size table
Table 8 Funds scores in the four areas
Full size table
Table 9 The efficient frontier for Markowitz model
Full size table
Table 10 The efficient frontier for EVE–CVaR model
Full size table

Rights and permissions

Reprints and permissions

About this article

Cite this article

Bilbao-Terol, A., Arenas-Parra, M., Cañal-Fernández, V. et al. Selection of Socially Responsible Portfolios Using Hedonic Prices. J Bus Ethics 115, 515–529 (2013). https://doi.org/10.1007/s10551-012-1411-6

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-012-1411-6

Keywords

Search

Navigation